Deciding How Much House You Can Afford
Deciding on how much you can afford, the lending company decides on up to what you can borrow. Lenders are meticulous; they make qualification decisions based on averages and formulas. They won’t understand the nuances of your lifestyle and spending patterns quite as well as you do, so leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from landscaping, to furnishings and some basic repairs, to all out renovations.
Historically, banks use a ratio called 28/36 to decide how much borrowers can be lent up to. An approved housing payment cannot be more than 28 percent of the buyer’s gross monthly income, and the borrowers total debt load, including car payments, student loans, and credit card payments, all debt repayments cannot be more the 36 percent of all monies coming into the household. (In Canada lenders apply similar formulas to determine how much a buyer can afford. The Gross Debt Service ratio, or GDS, is not to exceed 32 percent of the buyer’s gross monthly income, and the Total Debt Service ratio, or TDS, is not to go over 40 percent of the buyer’s total debt load.) As home prices have gone up, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we stress you to think carefully before stretching your budget quite so much.
Deciding how much you can afford should involve some meticulous attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter the most.
Homebuying Tools — Calculators
Powered by CMHC – Canadian Mortgage and Housing Corporation
Easy to use mortgage tools to help you establish your financial situation, determine how much house you can afford and the maximum price that you should be considering.
A tool that allows homebuyers to evaluate their financial situation and understand how much they can comfortably afford to spend on a mortgage.
A tool to help you estimate the premium payable when you are purchasing a home. Simply enter the purchase price, down payment and the amortization period.
Compare your income with your current or planned expenses and debt payments and see what you can afford.
A tool to find how much and how often your payment will be. Compare options and find one that’s right for you.
Easy to use mortgage tool to help you estimate the maximum mortgage you can afford.